Contractors Face Professional Liability Risks Even If They Don’t “Design” AnythingWhen you’re working on a construction project, a lot can go wrong. Below, we’ve outlined four of the most common contractor insurance claims, along with the insurance coverage needed to safeguard against each type of exposure. Make sure you’re covered for common contractor insurance claims before they disrupt your business.
Key Takeaways
- Construction is the most dangerous industry for workplace deaths, making worker injury coverage a baseline requirement for every contractor.
- General liability insurance covers third-party injuries and property damage, but it excludes claims tied to faulty work or professional negligence.
- Builder’s risk insurance protects a project’s rising value during construction, while commercial property insurance covers completed buildings and their contents.
- Commercial auto insurance is required separately, since general liability and property policies typically exclude vehicle-related losses.
- Contractors errors and omissions insurance is the only policy that responds when a client claims a financial loss from faulty work rather than an injury or property damage.
- Bundling multiple contractor policies with one broker can simplify claims handling and may reduce overall premium costs.
#1 Contractor Claim: Injuries
Construction is a dangerous industry. In fact, it’s the most dangerous industry in terms of workplace deaths, according to the National Safety Council. Even nonfatal injuries may result in expensive medical bills, lost wages, and costly lawsuits, meaning contractors need to have proper insurance in place.
- Worker Injuries. State law typically requires businesses to carry workers’ compensation insurance for employees to cover worker injuries. However, the situation becomes complicated if you classify some workers as independent contractors rather than employees. These contractors need to carry their own workers’ compensation insurance. Since state law varies, it’s a good idea to work with your insurance agent and review your contracts to make sure you’re meeting your legal obligations and covering all your bases. In our experience working with contractors across residential and commercial projects, worker classification mistakes — treating someone as an independent contractor who should legally be an employee — are one of the most common and costly gaps we catch during a policy review.
- Third-Party Injuries. General liability insurance covers third-party bodily injury claims as well as third-party property damage and advertising injury claims. This is important because your workers aren’t the only ones who could suffer an injury. For example, someone other than a worker could be injured on or around your construction site due to falling debris or trip hazards. If you are performing work at a client’s property, the client could also suffer an injury.
#2 Contractor Claim: Property Damage
Property damage may impact project timelines or cause projects to go over budget. You may need different types of insurance for each possible type of property damage:
- Third-Party Property Damage. As with third-party bodily injury claims, general liability insurance covers third-party property damage claims. For example, if you’re working at a client’s property and accidentally damage the building or the client’s belongings, general liability insurance will cover the claim.
- In-Progress Projects. Builder’s risk insurance covers construction projects that are currently in progress. It covers many common types of damage, including theft, vandalism, fire, lightning, and hail. For a deeper look at how this coverage adjusts as a project’s value grows, see our guide to builder’s risk insurance policies.
- Construction Equipment. Construction equipment often has a high value, meaning it may need special insurance.
- Other Property. Commercial property insurance is the primary coverage type for most types of commercial property, such as office buildings and the items kept there.
#3 Contractor Claim: Motor Vehicle Collisions
Many types of insurance (including general liability and commercial property insurance) exclude losses from motor vehicle collisions. For this reason, it’s necessary to carry commercial auto insurance.
In addition to meeting state requirements for minimum coverage, consider what limits may be necessary to cover potential losses. For example, you may need higher limits and additional coverage types to make sure you fully cover your vehicles. Liability is another concern. Jury verdicts have been rising, meaning a single lawsuit could now bankrupt a construction company. Consider securing additional liability insurance by adding a layer of umbrella liability insurance on top of your commercial auto insurance policy.
#4 Contractor Claim: Faulty Work and Negligence
Faulty work may result in financial losses for clients, who may file lawsuits to recover these costs. Commercial general liability insurance does not cover claims alleging financial losses due to negligence, but contractors errors and omissions insurance (also called professional liability insurance) does provide this coverage. We routinely see general contractor insurance buyers assume their general liability policy already covers a design or workmanship dispute, only to discover the exclusion after a claim has already been filed. For example, if a client claims that a faulty installation resulted in a financial loss, a contractors errors and omissions insurance policy should cover the resulting lawsuit.
How Much Does Contractor Insurance Cost?
Costs vary widely based on coverage type, project size, and location. General liability insurance typically runs $500 to $2,000 annually for small contractors, while larger projects can see premiums in the tens of thousands. Builder’s risk insurance usually costs 1% to 4% of the total construction budget, and workers’ compensation premiums are calculated as a percentage of payroll based on the type of work performed. For a precise number, it’s best to consult with an insurance broker who can tailor a package to your specific needs.
Do You Have Protection Against Common Contractor Claims?
Construction companies have complex insurance needs due to the nature of their work and the numerous risks involved. In addition to the above coverage types, you may need other policies (such as pollution and environmental insurance) to protect against specific risks associated with your projects. You may also need surety bonds and other products to meet your legal and contractual obligations.
It may be possible to bundle insurance policies, which may result in substantial savings while simplifying claims. An insurance broker can help you review your options and put together a package that meets your needs and budget. As more owners and lenders build specific coverage requirements into project contracts, having documented, up-to-date insurance in place before a project starts has become table stakes rather than a nice-to-have. For more on how these coverages fit together, see our roundup of essential insurance policies every contractor needs in 2026.
Contractor claims rarely wait for a slow season. From a torn ACL on a jobsite to a subcontractor’s faulty wiring surfacing years after handoff, the four claim types above can hit at any stage of a project — and the wrong policy mix can leave your firm covering the gap out of pocket.
